Biggest bailout, but is it enough?

The $700 billion bailout package for the U.S. financial system represents a massive effort to thaw frozen credit markets and address a worsening solvency problem that already has claimed several major casualties on Wall Street.

Economists and banking analysts were unsure Sunday whether the biggest government intervention in the financial markets since the Great Depression will provide enough help to world credit markets or prevent the U.S. economy from falling into a deep, prolonged recession.

The rescue package “will provide a respite for a period of time, but it is no magic wand,” said Brian Bethune, chief U.S. financial economist for Global Insight, an economic consulting firm.

The rescue package that emerged from negotiations early Sunday morning differed significantly from the three-page proposal that Treasury Secretary Henry M. Paulson Jr. submitted to House and Senate leaders eight days earlier. Negotiators on all sides made major compromises on many issues.

“By far, taxpayers were better protected under the final plan than under Paulson’s original draft,” said Jared Bernstein, a senior economist at the liberal Economic Policy Institute.

What emerged from the negotiations represented an “improvement over Paulson’s draft,” Mr. Bethune said.

The additional provisions, including giving the Treasury the right to buy stock in companies it bails out, increased congressional oversight and restrictions on executive compensation, will give the program more flexibility and make it more palatable to taxpayers, he said.

The final plan authorizes the Treasury Department to begin purchasing troubled mortgages, mortgage-backed securities and other “toxic” assets from financial institutions whose balance sheets have been severely weakened by the housing bubble bursting, which was followed quickly by soaring foreclosures.

The housing crisis has already contributed to the loss of nearly 800,000 private-sector jobs since November. Senate Budget Committee Chairman Kent Conrad, North Dakota Democrat, said Federal Reserve Chairman Ben S. Bernanke told members of Congress that 3 million to 4 million Americans will lose their jobs in the next six months if the credit freeze continues.

The rescue package could reach $700 billion, but that sum will be available only in installments. Treasury will have immediate access to $250 billion and can obtain $100 billion more after the president makes a request. Congress could prevent the release of the final $350 billion by passing a joint resolution blocking the funds from being spent.

Financial firms participating in the program must provide the government with the right to buy nonvoting shares in the company, which will help limit the losses to taxpayers. At the end of five years, the plan requires the president to submit to Congress a proposal that recovers from the financial industry any projected losses to the taxpayer.

The Treasury secretary will be responsible for establishing the mechanisms for purchasing troubled assets and the methods for pricing and valuing those assets.

The package includes several provisions aimed at limiting executive compensation for firms participating in the program, including one that will assess a 20 percent excise tax on multimillion-dollar “golden parachutes” triggered by events other than retirement.

The package contains significant oversight mechanisms, including a board appointed by congressional leaders of both parties; an independent inspector general who would monitor the Treasury secretary’s decisions; the presence of the Government Accountability Office at Treasury to oversee the program and conduct audits; and a Financial Stability Oversight Board to review and make recommendations regarding the exercise of authority under the law.

A transparency provision requires all transactions to be posted on the Internet.

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